Large scale asset purchase programmes by central banks worked precisely because they artificially lowered long term interest rates, by pushing up the prices of assets purchased by CBS. The idea was economic growth will sooner or later acquire momentum in which case the higher asset price could be sustained without central bank support. But has it? At best, in my view growth remains anaemic. Thus, if CBs start unwinding QE too quickly, asset prices will start declining. I do, however, think that this is an unlikely scenario, QE will continue for as long as necessary to prevent this.
There is no doubt that both public and private debt levels remain at record levels, partly because economic growth has been sluggish and median household incomes as well as real wage growth have been squeezed since the global financial crisis. There’s also no doubt that QE has helped to keep asset order cues artificially high. As Borio says, however, we do not fully understand all the factors at play.
What we do know about high levels of non performing loans in Europe, for example, compounds these concerns. Italy is a particular concern because of the lethal mix between high levels of NPLs in the banking system and public debt and because it’s big enough to cause another existential crisis in the Euro area. The way in which failing banks in the Veneto region were dealt with a few months ago doesn’t inspire much confidence in the resolution frameworks in place and more broadly the new financial architecture in Europe. Italy can ill afford to bail out more banks.
I suspect that’s what’s Schäuble has at the back of his mind and I have no doubt that if he says he is concerned about these risks, they must be pretty serious ones.
The skepticism about the Euro is understandable when one looks at the common currency in purely economic terms, benefits and costs. It is only when we start taking into account the political benefits of bringing 19 diverse countries in Europe closer together, building bridges and shared understanding, embedding peace and cooperation in the psyche of European citizens, that the cost benefit analysis becomes clearer. One needs to look at the costs of two world wars to begin to appreciate the rewards from peace and cooperation. Yes, there are economic costs to bringing divergent economics miles together but in no way are the economic costs larger than the political benefits of peace and cooperation. It's time the economic mica profession wakes up to political realities.
Notwithstanding all its imperfections, the Euro remains the only way forward for Europe to continue to process of further economic and political integration and embed shared common values, including democracy, respect for human rights, rule of law and diversity throughout the continent. Without further intergration, the risks of rising nationalism and populism pose a serious threat. Further economic convergence is needed and better social safety nets. Sooner or later some degree of fiscal federalism will be needed and the use of the common currency makes all aspects of integration a lot easier. It also makes Europe a more powerful force internationally. The momentum needs to be maintained, so that in one or two generations, citizens of Europe will not know any alternatives. At that stage Europeans will begin looking like the United States. Does anyone today think that California or Florida could have their own currencies?
Question 2: Do you agree that the different behaviour of UK real wages relative to Eurozone wages during the Great Recession is in large part due to the UK having different labour market policies?
To explain this one needs to also look at differences in migrant worker flows within the EU. It could be that the UK attracted more Eastern European workers to low paid jobs, helping to depress real wages and achieve higher growth, at the expense of domestic workers. Low paid jobs done by lots of migrant workers are not a good recipe for sustainable growth and social cohesion.
The CFM surveys informs the public about the views held by prominent economists based in Europe on important macroeconomic and public policy questions. Some surveys focus specifically on the UK economy (as the CFM is a UK research centre), but surveys can in principle focus on any macroeconomic question for any region. The surveys shed light on the extent to which there is agreement or disagreement among these experts. An important motivation for the survey is to give a more comprehensive overview of the beliefs held by economists and in particular to include the views of those economists whose opinions are not frequently heard in public debates.
Questions mainly focus on macroeconomic and public policy topics. Although there are some questions that focus specifically on the UK economy, the setup of the survey is much broader and considers questions related to other countries/regions and also considers questions not tied to a specific economy.
The surveys are done in collaboration with the Centre for Economic Policy Research (CEPR).
Global risks from rising debt and asset prices
======================================================================
Question 2: Is the loose monetary policy of major central banks responsible for the recent increase in global leverage or asset values?
======================================================================
======================================================================
Question 1: Does the world economy face heightened risks arising from an excess of public and private debt and/or inflated asset prices?
======================================================================
Juncker's State of the Union Address
====================================================================
Question 2: Do you agree that the euro has had more benefits than costs?
====================================================================
====================================================================
Question 1; Do you agree that euro membership should be compulsory for all EU member states?
====================================================================
Wages and economic recoveries
====================================================================
Question 2: Do you agree that the different behaviour of UK real wages relative to Eurozone wages during the Great Recession is in large part due to the UK having different labour market policies?
====================================================================
Pages